UNITED Overseas Bank (UOB) could see its non-performing loan (NPL) ratio rise to 2 per cent if oil prices stay lower longer.
Of its S$12 billion exposure to the oil and gas sector, S$2 billion is vulnerable, said Wee Ee Cheong, UOB deputy chairman and chief executive.
The total S$12 billion oil and gas exposure is mainly to "less vulnerable traders and downstream players", he said on Tuesday at the bank's Q4 2015 results presentation. UOB is the first of the three local banks to post Q4 results.
Singapore banks' exposure to the oil and gas sector and China is under intense scrutiny given the region's economic slowdown and oil prices which have fallen to their lowest in over a decade.
The S$2 billion exposure could show weakness if oil prices stay lower longer, said Mr Wee.
UOB has reviewed the exposure which while "could be vulnerable is well secured".
The bank's credit costs are 32 basis points this year, and "if the scenario continues to weaken, it may hit 35 to 40 basis points", Mr Wee said.
That could mean group NPL ratio rising to 2 per cent, said Lee Wai Fai, UOB group chief financial officer, adding it may not hit all at once.
UOB's NPL ratio rose slightly to 1.4 per cent at end-2015, up from 1.3 per cent at end-September and 1.2 per cent a year ago. The higher NPL was mainly due to non-performing accounts in Singapore, Indonesia and Greater China.
It reported net earnings of S$788 million for the fourth quarter ended Dec 31, 2015, up 0.3 per cent compared to S$786 million a year ago.
UOB's total exposure to commodities is S$21 billion at end-2015, which includes S$5 billion to metals and minings and S$4 billion to agribusiness.
The group's total exposure to China is also S$21 billion, or 6.6 per cent of total assets.
Half of the China exposure is to banks, with 75 per cent accounted for by top five domestic banks and policy banks. Trade exposures are mostly with bank counterparties, representing 65 per cent of bank exposure.
The non-bank exposure customers include top-tier state-owned enterprises, large local corporates and foreign investment enterprises.
The China NPL ratio is around one per cent. Half of the loans are denominated in yuan and about half have tenor within a year.
UOB has minimal exposure to stockbroking companies linked to China's stock market and no exposure to Qingdao fraud and local government financing vehicles.
On the year's outlook, Mr Wee said the bank is "still targetting for growth" as it sees an economic slowdown, not a crisis.
The group is "targetting mid-single digit" loans growth this year, he said. "We could see opportunities for us in this environment as some banks withdraw."
As for Singapore property prices, Mr Wee said "I see property (prices) continue to be flat or even down" given the strict financing regime and more new developments coming onstream.